Leaving bitcoins on exchanges risky – Analysts

According to them, bitcoins experienced its first bank run on Thursday.

Coindesk reports that analysts noted participants took their money out of third-party bitcoin services and moved them to accounts only they themselves controlled.

“We’re going to withdraw all our bitcoin from any third-party services just to prove that they’re there,” said Trace Mayer, Proof of Keys leader and bitcoin podcast host, in a video announcing the project.

As described by Mayer, the motivation is simple. Many bitcoiners leave their bitcoins on exchanges. This is risky, as millions of dollars have been stolen from exchanges by way of hacks over the years.

Not to mention, it means users don’t really have full control over their money — a fact many might not realise.

The movement debuts on the 10th anniversary of bitcoin’s first-ever block, the day bitcoin’s anonymous creator turned his or her theory into a living, breathing digital currency.

Proof of Keys has been compared to a “bank run,” where a flood of people withdraw their money from a bank, worried that the institution is going under. But unlike old-fashioned runs, this one is pre-planned and deliberate.

If enough people pull their money off exchanges, advocates argue, it’ll expose, and perhaps topple, the ones that are operating like fractional-reserve banks.

Big names such as former Symbiont president Caitlin Long, smart contract pioneer Nick Szabo, Coinbase CTO Balaji S. Srinivasan, and CoinKite CEO Rodolfo Novak have all etched the Proof of Keys symbol prominently in their Twitter profiles. Even bitcoin companies like Shapeshift and Casa have thrown their support behind the effort.

The first task is for users to take control of their private keys. While bitcoin is “trustless,” most users hand their bitcoin to a third party who takes care of it for them. The risk is, if this service is hacked, all their bitcoins are lost.

“Proof of Keys” advocates argue users need to move their private keys to a device, such as a secure hardware wallet, where they actually have full control of their money.

The second job for users is to spin up what’s known as a bitcoin “full node,” which keeps a history of every transaction ever made on bitcoin, as well as the rules binding the global network together. That way they can validate which transactions are following the rules, without relying on anyone else.

If this sounds like a mouthful, some users have already done it, posting their results to Twitter. And advocates argue the learning experience (however time-consuming) is worth it.

“Learning how to do this will teach you about private keys and monetary sovereignty,” tweeted Srinivasan.